Consumer Companies Showing Signs of Life

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Includes: BBY, CAG, DPS-OLD
by: Ockham Research

Three big earnings results came in this morning prior to the market open, and each of them has been greatly affected by the slowdown in consumer spending. Or have they? First, Best Buy (NYSE:BBY) came out with earnings that greatly exceeded even the high expectations that analysts had placed on it (Expectations are High for Best Buy). Excluding one-time items, the company earned $1.61 per share, 21 cents better than consensus estimates. Perhaps, the holiday shopping season was not as bad as some had thought, at least at Best Buy.

“It started to make you feel as if there were real buyers coming in and this morning Best Buy surprised to the upside. I think you’re going to see more somebody pointed out a fact to me that I think it’s ten retailers are above their 200-day moving average which is extremely bullish.” Power Lunch 3/26/2009ockham historical valuation BBY

Secondly, Dr. Pepper Snapple (NYSE:DPS-OLD) did swing to a loss in the quarter, but much of that was caused by a nearly $700 million write-down in goodwill. Excluding that write-down the stock beat out the Street’s expectations again albeit by a small margin. Earnings came in at $.39, more than 5% better than had been expected.

Furthermore, ConAgra Foods (NYSE:CAG) reported results that exceeded expectations. Although net income fell by 37%, sales rose by more than 6%. The increase in sales is a positive sign as the company was able to raise prices with little to no impact on sales gains.

“Outside of that Dr. Pepper/Snapple group out with good numbers. Their earnings came in pretty well. ConAgra also had great earnings and good commentary. They were able to raise prices. So yeah we’ve got a lot of consumer companies here today, not big industrial companies. But still the commentary is pretty good.” Squawk on the Street 3/26/2009CAG

These results are giving the market a little bit of hope even as the latest GDP revision for the 4th quarter showed a decline of 6.3%, the worst in 28 years. Personal consumption was off by 4.3% and was the biggest drag on the economy. As everyone knows consumption is the largest component of GDP by far, so if the spending resumes in short order the overall economy will start to see improvement. Of course, each of these company's results are down from where they were a year ago, but they have not suffered as much as the experts had thought. These results suggest that a recovery might be closer than originally thought, and each of these stocks is seeing a nice gain on the day.

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